How Pakistan Economy can be Corrected.

The Pakistani economy is in a dire state and requires significant reforms. The country needs financial stability and the return of private investors. Achieving long-term goals can only be done through a policy framework that is not bound by the short-term constraints of an individual or political party's tenure. Many experts have advocated for reforms and improvements in the energy and tax sectors over the years. While the economic experts' perspective may sometimes differ from that of politicians, economic wisdom cannot succeed if it faces political obstacles.

However, in Pakistan, politicians and other leaders often prioritize economic decisions based on political considerations or public reactions. Pakistan's tax-to-GDP ratio is around 10.3%, which should be increased to 15%. Pakistan needs to attract investment. Many state-owned enterprises taken over in the 1990s burden the government heavily. Efforts to privatize them have faced resistance but could be carried out more effectively in the private sector, benefiting from foreign buyers and boosting foreign exchange reserves.

Some institutions should be closed, and their assets should be put to better use elsewhere. Other countries have successfully done this. Pakistan should follow suit. Some businesses have been running at a loss for years and are unlikely to become profitable under the government's management. Some institutions may need to be closed, and their assets used more productively elsewhere.

Most countries determine fuel prices in the market, and Pakistan should not be an exception. When international fuel prices increase, consumers should pay higher prices, just as they should benefit from lower prices when they decrease. The current practice of government setting energy prices needs to change. The government should directly generate most of its revenue through taxes, eliminate regressive surcharges on consumers, and allow market-based pricing for fuel and electricity.

Pakistan cannot print more money to cover its budget deficit because printing more money leads to inflation. Federal and provincial governments need to agree on a framework that ensures the implementation of fiscal responsibility and revenue collection commitments. The national fiscal situation needs to be as transparent as possible. Joint efforts to increase revenues are required.

Pakistan should diversify its exports to earn more income. Textiles, rice, leather goods, surgical instruments, and sports equipment were the main sources of export earnings in the 1960s, as per the school textbooks of that era. Now, Pakistan's neighbor India, whose export list was similar fifty years ago, exports refined petroleum, polished diamonds, pharmaceuticals, computer software, and jewelry. Pakistan's business community should consider diversifying into new sectors that benefit their interests.

Adam Smith, often referred to as the father of economics, identified three fundamental principles of economics: the law of self-interest, the law of competition, and the law of supply and demand. It is essential to understand that investment and business decisions will be based on self-interest, fair competition will enhance the economy, and the prices of goods and services should be determined based on supply and demand.

The government's role should not be to lecture traders on their patriotic duty to invest or pay taxes. Instead, it should create an environment where investment and tax compliance align with the self-interest of investors and traders. Currently, authorities are focused on administrative actions such as cracking down on smuggling (which leads to product shortages), hoarding essential items (which artificially restricts supply and raises prices), and profiteering (which harms both investment and competition). These actions can be beneficial, but their limitations need to be kept in mind. General Ayub Khan's observations are still relevant today: "What the military officers did not understand was that the Law of Supply and Demand is conditional and that they had to take various public opinions into account. I will tell them the results of two immediate measures we took on the first day of the revolution. We imposed a strict control of hoarding and profiteering. The initial enthusiasm led to fantastic purchases of 1.25 rupees per kilogram of jaggery and of copper, tin and watches at incredibly low prices. But once stocks were sold out, there was no alternative. There was no incentive for the trader to buy again."

In summary, Pakistan faces economic challenges that require substantial reforms. These include increasing tax revenue, attracting private investment, and allowing market-based pricing for key commodities like fuel and electricity. Diversifying exports and creating a business-friendly environment are also crucial. Policymakers should focus on aligning economic decisions with self-interest and fair competition to create a sustainable and thriving economy.